Trends in New Jersey Migration: Housing, Employment, and Taxation

This study provides an empirical analysis of recent migration into and out of New
Jersey. We focus on the social and demographic characteristics of migrants in
order to inform public policy. While New Jersey has much to do to ensure the
future vitality of the state and its residents, the state’s ability to attract and
retain a highly educated and highly compensated workforce remains strong.
Methodology
The study draws upon three main data sets. The U.S. Census Bureau’s
population program provides official estimates of aggregate migration trends.
To gain insight into the social and demographic characteristics of migrants, we
use the Census Bureau’s American Community Survey, which provides a random
sample of migrants for the years 2000‐2006. Finally, we analyze New Jersey
state income tax data to assess the migration patterns of New Jersey households
earning more than $500,000 in annual income.
Study Findings
The High Cost of Living and New Jersey’s “Brain Gain”
In broad terms, the data indicate, first, that out‐migration from New Jersey to
other states is driven by low‐income individuals; and second, that the state is
seeing a modest net “brain gain” of highly educated people moving into New
Jersey. The data also indicate that the high cost of living (and especially the high
cost of housing) is the main factor that leads to the state’s net out‐migration.
The impact of the “half‐millionaire tax” on the migration of New Jersey’s
wealthiest households is small.
New Jersey’s Domestic Migration Patterns: Out‐flow of Lower‐Income Residents; In‐flow of Higher‐Income Residents
The U.S. Census Bureau’s migration estimates show that New Jersey has
experienced net domestic out‐migration since at least 1991. This has closely
paralleled the overall migration trends in the northeastern United States. On
average, New Jersey loses 5.5 residents per 1000 population each year.
New Jersey sees both inflows and outflows of residents. To look at the balance of
these population flows, we calculate the net gain or loss per 100 out‐migrants.
We compute this statistic for a wide range of socio‐demographic groups.
New Jersey’s net domestic out‐migration is primarily occurring at the bottom
end of the income distribution level. Below the state’s median family income,
there is a net loss of 26 people for every 100 out‐migrants. However, above New
Jersey’s median income, there is a net gain of 5 people per 100 out‐migrants.
Among working people, net out‐migration is essentially zero (a net loss of1.8 per
100 out‐migrants). Net out‐flows consist of people who are either unemployed
(33.6 per 100 out‐migrants) or out of the labor force (30.3 per 100 out‐migrants).
These net outflows have helped raise the employment to population ratio in
New Jersey.
Most New Jersey out‐migrants move to states that impose higher state income
taxes. This is because, first, New Jersey’s income tax rates for lower‐income
individuals (1.4% to 1.75%) are well below that of most other states. Second,
most of the net out‐migrants have low incomes. State income tax policy does not
explain why people are moving out of New Jersey.
New Jersey out‐migrants tend to move to states that have much lower property
values (35% lower), property taxes (41% lower) and overall costs of living (17%
lower). Destination states also have notably lower average incomes, substantially
higher crime rates, higher infant and child mortality; slightly lower school quality,
but somewhat warmer winters. Overall, it appears that net out‐migration is due
to the high cost of living (especially the high cost of housing and property tax) in
New Jersey.
The states with migration patterns most similar to New Jersey are California,
New York, and Massachusetts. These states, like New Jersey, are experiencing
net out‐migration driven by lower‐income individuals. All of these states have a
high cost of living and high housing prices. Factors such as tax rates, climate, and
crime rates do not appear to explain the migration patterns in these states.
While New Jersey has, for a long time, experienced net domestic out‐migration,
this is not a symptom of economic decline in the state. On the contrary,
out‐migration is largely a consequence of regional inflation in the cost of living
that makes New Jersey difficult to afford for lower‐income residents. Outmigration
from New Jersey is a byproduct of prosperity, not decline.
Domestic Migration Patterns of New Jersey’s “Half‐Millionaires” and Income Growth among the State’s Top Earners
As a result of the new 8.97% New Jersey tax rate on annual income above
$500,000, a key issue in the policy debate concerns whether the state’s
“half‐millionaires” are fleeing the state after the imposition of the tax in 2004. In
other words, some analysts have suggested that the new bracket makes New
Jersey a less desirable residential choice for half‐millionaires, causing some of
them to seek greener tax pastures.
We note that in spite of net out‐migration, the number of half‐millionaires in
New Jersey has increased sharply in recent years, from 26,0026,000 in 2002 to 44,000
in 2006 (a 70% increase). Income growth among high earners has led to a
tremendous increase in the number of people who fall into the half‐millionaire
tax bracket. Using New Jersey tax records, we estimate that the new
half‐millionaire tax rate has generated an average of $895 million per year in tax
revenues, rising from $739 million in 2004 to over $1 billion in 2006.
The data suggest that there was an increase in net out‐migration of
half‐millionaire households after the new tax rate went into effect in 2004.
However, the effect is small. We estimate that New Jersey loses, at most, an
additional 67 half‐millionaire households per year to other states. In addition,
we estimate that up to 287 half‐millionaire households per year may choose not
to move to New Jersey as a consequence of the new tax bracket. This suggests a
total loss of about 350 half‐millionaire households per year relative to the
current New Jersey population of 44,000 half‐millionaire households. The
foregone tax revenue associated with the “missing” households amounts to
approximately $38 million per year. In our view, this is a small side effect of a tax
policy that generated more than $1 billion in 2006.
Migration’s Fiscal Impact on New Jersey
It is not clear that net out‐migration has a negative fiscal impact for the state
government. Understanding the fiscal impact requires a full cost‐benefit analysis.
For example, adding one million people to New Jersey would greatly strain
government services and public resources and amenities. However, adding one
million people would presumably bring in enough additional tax revenue to
cover these costs. We suspect that in a very high density state such as New
Jersey, population growth is more costly and difficult to manage than outmigration.
We note that “income losses” to the New Jersey economy from out‐migration
are in large part illusory. An out‐migration of employers and jobs would lead to a
reduction of per‐capita GDP in the state. However, an outflow of labor supply
does not: it either creates new job vacancies or reduces the number of
unemployed. This is beneficial for workers and job seekers in New Jersey.
Indeed, the data show that unemployment is, in part, being exported to other
states.
Conclusions and Policy Recommendations
The economic impact of migration, in our view, is ambiguous, but we contend
that what matters is productivity (per capita income). Out‐migration can be
alarming as a possible symptom of economic decline or deteriorating
productivity. However, New Jersey’s out‐migration is characterized by a state
economy with high and rising incomes and below‐average unemployment; an
extremely expensive and rapidly appreciating housing stock; and net in‐flows of
people with advanced education. All of the latter are signs that the growing
affluence of New Jersey is pushing out low‐income individuals who are simply
unable to afford the high cost of living.
New Jersey’s experience is in contrast to areas like Detroit, Michigan, where outmigration
is characterized by falling wages, high unemployment, falling housing
prices and modest in‐flows of residents with low education and low labor force
participation. It is under these circumstances that out‐migration is a symptom of
economic decline.
New Jersey has held its position as an extremely high income state, despite
almost two decades of continuous net domestic out‐migration. The state has the
second‐highest average income in the union.
As such, our report highlights the need for policy analysts to better understand
the migration process. To study income or tax losses due to migration, one must
look at the migration of employers and jobs (income‐earning positions), not the
migration of workers and job‐seekers. While this would require further research
and different types of data, we see little evidence of an out‐migration of jobs or
employers.
In summary, migration out of New Jersey is almost entirely due to low income
individuals moving to areas with lower living costs. The most important step to
reducing out‐migration would be to improve the affordability of housing in the
state, particularly for low‐income residents.

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This study provides an empirical analysis of recent migration into and out of New
Jersey. We focus on the social and demographic characteristics of migrants in
order to inform public policy. While New Jersey has much to do to ensure the
future vitality of the state and its residents, the state’s ability to attract and
retain a highly educated and highly compensated workforce remains strong.
Methodology
The study draws upon three main data sets. The U.S. Census Bureau’s
population program provides official estimates of aggregate migration trends.
To gain insight into the social and demographic characteristics of migrants, we
use the Census Bureau’s American Community Survey, which provides a random
sample of migrants for the years 2000‐2006. Finally, we analyze New Jersey
state income tax data to assess the migration patterns of New Jersey households
earning more than $500,000 in annual income.
Study Findings
The High Cost of Living and New Jersey’s “Brain Gain”
In broad terms, the data indicate, first, that out‐migration from New Jersey to
other states is driven by low‐income individuals; and second, that the state is
seeing a modest net “brain gain” of highly educated people moving into New
Jersey. The data also indicate that the high cost of living (and especially the high
cost of housing) is the main factor that leads to the state’s net out‐migration.
The impact of the “half‐millionaire tax” on the migration of New Jersey’s
wealthiest households is small.
New Jersey’s Domestic Migration Patterns: Out‐flow of Lower‐Income Residents; In‐flow of Higher‐Income Residents
The U.S. Census Bureau’s migration estimates show that New Jersey has
experienced net domestic out‐migration since at least 1991. This has closely
paralleled the overall migration trends in the northeastern United States. On
average, New Jersey loses 5.5 residents per 1000 population each year.
New Jersey sees both inflows and outflows of residents. To look at the balance of
these population flows, we calculate the net gain or loss per 100 out‐migrants.
We compute this statistic for a wide range of socio‐demographic groups.
New Jersey’s net domestic out‐migration is primarily occurring at the bottom
end of the income distribution level. Below the state’s median family income,
there is a net loss of 26 people for every 100 out‐migrants. However, above New
Jersey’s median income, there is a net gain of 5 people per 100 out‐migrants.
Among working people, net out‐migration is essentially zero (a net loss of1.8 per
100 out‐migrants). Net out‐flows consist of people who are either unemployed
(33.6 per 100 out‐migrants) or out of the labor force (30.3 per 100 out‐migrants).
These net outflows have helped raise the employment to population ratio in
New Jersey.
Most New Jersey out‐migrants move to states that impose higher state income
taxes. This is because, first, New Jersey’s income tax rates for lower‐income
individuals (1.4% to 1.75%) are well below that of most other states. Second,
most of the net out‐migrants have low incomes. State income tax policy does not
explain why people are moving out of New Jersey.
New Jersey out‐migrants tend to move to states that have much lower property
values (35% lower), property taxes (41% lower) and overall costs of living (17%
lower). Destination states also have notably lower average incomes, substantially
higher crime rates, higher infant and child mortality; slightly lower school quality,
but somewhat warmer winters. Overall, it appears that net out‐migration is due
to the high cost of living (especially the high cost of housing and property tax) in
New Jersey.
The states with migration patterns most similar to New Jersey are California,
New York, and Massachusetts. These states, like New Jersey, are experiencing
net out‐migration driven by lower‐income individuals. All of these states have a
high cost of living and high housing prices. Factors such as tax rates, climate, and
crime rates do not appear to explain the migration patterns in these states.
While New Jersey has, for a long time, experienced net domestic out‐migration,
this is not a symptom of economic decline in the state. On the contrary,
out‐migration is largely a consequence of regional inflation in the cost of living
that makes New Jersey difficult to afford for lower‐income residents. Outmigration
from New Jersey is a byproduct of prosperity, not decline.
Domestic Migration Patterns of New Jersey’s “Half‐Millionaires” and Income Growth among the State’s Top Earners
As a result of the new 8.97% New Jersey tax rate on annual income above
$500,000, a key issue in the policy debate concerns whether the state’s
“half‐millionaires” are fleeing the state after the imposition of the tax in 2004. In
other words, some analysts have suggested that the new bracket makes New
Jersey a less desirable residential choice for half‐millionaires, causing some of
them to seek greener tax pastures.
We note that in spite of net out‐migration, the number of half‐millionaires in
New Jersey has increased sharply in recent years, from 26,0026,000 in 2002 to 44,000
in 2006 (a 70% increase). Income growth among high earners has led to a
tremendous increase in the number of people who fall into the half‐millionaire
tax bracket. Using New Jersey tax records, we estimate that the new
half‐millionaire tax rate has generated an average of $895 million per year in tax
revenues, rising from $739 million in 2004 to over $1 billion in 2006.
The data suggest that there was an increase in net out‐migration of
half‐millionaire households after the new tax rate went into effect in 2004.
However, the effect is small. We estimate that New Jersey loses, at most, an
additional 67 half‐millionaire households per year to other states. In addition,
we estimate that up to 287 half‐millionaire households per year may choose not
to move to New Jersey as a consequence of the new tax bracket. This suggests a
total loss of about 350 half‐millionaire households per year relative to the
current New Jersey population of 44,000 half‐millionaire households. The
foregone tax revenue associated with the “missing” households amounts to
approximately $38 million per year. In our view, this is a small side effect of a tax
policy that generated more than $1 billion in 2006.
Migration’s Fiscal Impact on New Jersey
It is not clear that net out‐migration has a negative fiscal impact for the state
government. Understanding the fiscal impact requires a full cost‐benefit analysis.
For example, adding one million people to New Jersey would greatly strain
government services and public resources and amenities. However, adding one
million people would presumably bring in enough additional tax revenue to
cover these costs. We suspect that in a very high density state such as New
Jersey, population growth is more costly and difficult to manage than outmigration.
We note that “income losses” to the New Jersey economy from out‐migration
are in large part illusory. An out‐migration of employers and jobs would lead to a
reduction of per‐capita GDP in the state. However, an outflow of labor supply
does not: it either creates new job vacancies or reduces the number of
unemployed. This is beneficial for workers and job seekers in New Jersey.
Indeed, the data show that unemployment is, in part, being exported to other
states.
Conclusions and Policy Recommendations
The economic impact of migration, in our view, is ambiguous, but we contend
that what matters is productivity (per capita income). Out‐migration can be
alarming as a possible symptom of economic decline or deteriorating
productivity. However, New Jersey’s out‐migration is characterized by a state
economy with high and rising incomes and below‐average unemployment; an
extremely expensive and rapidly appreciating housing stock; and net in‐flows of
people with advanced education. All of the latter are signs that the growing
affluence of New Jersey is pushing out low‐income individuals who are simply
unable to afford the high cost of living.
New Jersey’s experience is in contrast to areas like Detroit, Michigan, where outmigration
is characterized by falling wages, high unemployment, falling housing
prices and modest in‐flows of residents with low education and low labor force
participation. It is under these circumstances that out‐migration is a symptom of
economic decline.
New Jersey has held its position as an extremely high income state, despite
almost two decades of continuous net domestic out‐migration. The state has the
second‐highest average income in the union.
As such, our report highlights the need for policy analysts to better understand
the migration process. To study income or tax losses due to migration, one must
look at the migration of employers and jobs (income‐earning positions), not the
migration of workers and job‐seekers. While this would require further research
and different types of data, we see little evidence of an out‐migration of jobs or
employers.
In summary, migration out of New Jersey is almost entirely due to low income
individuals moving to areas with lower living costs. The most important step to
reducing out‐migration would be to improve the affordability of housing in the
state, particularly for low‐income residents.